The groups' letter included a fact sheet (or, as one critic called it, an opinion sheet) that attempts to debunk the perception put forth by some industry lobbyists that the proposed bill imposes a one-size-fits-all regulation on all people who provide investment advice, or that it would impose burdensome costs to advisors, or that applying the fiduciary standard across the board denies investors access to products and services.
The fact sheet also attempts to refute that the Senate bill would prevent firms from charging commissions, would impose a fiduciary standard on self-directed accounts, or wouldn't allow advisors to engage in principal trading (though the Investment Advisers Act does impose some limitations on that activity).
As for Blankfein's surprising support for the fiduciary standard, one wonders what exactly that means. According to Dow Jones Newswires, Blankfein was asked during the hearing whether Goldman's practice of betting against some of the subprime mortgage securities it sold to investors was a conflict of interest.
He replied that Goldman didn't have a legal obligation to disclose when it was betting against the securities it was selling. As of press time, it wasn't clear what form of fiduciary standard Blankfein favored.
Independent Contractor Status Under Review
Both houses of Congress are considering bills that could revoke the independent contractor status among advisors and make them employees of their affiliated firms.
The House version came last summer when Rep. Jim McDermott (D-Wash.) introduced legislation that would eliminate Section 530 of the Revenue Act of 1978, the so-called safe harbor provision that lets employers classify workers as independent contractors rather than employees as long as they meet specific criteria.
Critics contend the provision is a loophole used by some employers to avoid paying employment taxes and workers' compensation and benefits.
In December, Sen. John Kerry (D-Mass.) introduced his version of a bill that aims to kill Section 530, or at least make it more difficult and costly for businesses to incorrectly classify employees as independent contractors.
Some advisor groups boo these developments. "Independent contractors are small businesses, but because regulators make us pay them individually we have to issue them a [Form] 1099," says Steve Distante, chairman of the National Association of Independent Broker/Dealers. "We're caught in between in that we supervise small businesses but have to pay them individually."
Dale Brown, CEO and president of the Financial Services Institute (FSI), a membership group representing independent broker-dealers and advisors, says if independent advisors become classified as employees it could force broker-dealer firms to pay Social Security taxes, provide benefits and assume liabilities for these advisors. He adds it could mean additional personnel and compliance costs for many small and midsize independent broker-dealers.